Notice2024-13552
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges
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Published
June 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 120 (Friday, June 21, 2024)</title>
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[Federal Register Volume 89, Number 120 (Friday, June 21, 2024)]
[Notices]
[Pages 52153-52156]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13552]
[[Page 52153]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100350; File No. SR-NYSEARCA-2024-50]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Equities Fees and Charges
June 14, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 3, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to provide an additional calculation for
purposes of determining whether an ETP Holder qualifies for fees and
credits that pertain to providing liquidity under certain pricing
tiers. The Exchange proposes to implement the fee change effective June
3, 2024. The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to provide an
additional calculation for purposes of determining whether an ETP
Holder qualifies for fees and credits that pertain to providing
liquidity under certain pricing tiers. More specifically, the proposed
additional calculation would apply to the following pricing tiers in
Section VII. of the Fee Schedule: Adding Tiers,\3\ Limit Non-Display
Step Up Tier and Tape C Tiers for Adding.\4\ The Exchange proposes to
implement the fee change effective June 3, 2024.
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\3\ Adding Tiers refers to Tiers 1 through 5 under the Adding
Tiers pricing tier table on the Fee Schedule.
\4\ Tape C Tiers for Adding refers to Tiers 1 through 3 under
the Tape C Tiers for Adding pricing tier table on the Fee Schedule.
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Background
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \5\
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\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final
Rule) (``Regulation NMS'').
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While Regulation NMS has enhanced competition, it has also fostered
a ``fragmented'' market structure where trading in a single stock can
occur across multiple trading centers. When multiple trading centers
compete for order flow in the same stock, the Commission has recognized
that ``such competition can lead to the fragmentation of order flow in
that stock.'' \6\ Indeed, equity trading is currently dispersed across
16 exchanges,\7\ numerous alternative trading systems,\8\ and broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly available information, no single exchange currently
has more than 20% market share.\9\ Therefore, no exchange possesses
significant pricing power in the execution of equity order flow. More
specifically, the Exchange currently has less than 12% market share of
executed volume of equities trading.\10\
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\6\ See Securities Exchange Act Release No. 61358, 75 FR 3594,
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on
Equity Market Structure).
\7\ See Cboe U.S Equities Market Volume Summary, available at
<a href="https://markets.cboe.com/us/equities/market_share">https://markets.cboe.com/us/equities/market_share</a>.
\8\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsIssueData">https://otctransparency.finra.org/otctransparency/AtsIssueData</a>. A list of
alternative trading systems registered with the Commission is
available at <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
\9\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>.
\10\ See id.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
move order flow, or discontinue or reduce use of certain categories of
products. While it is not possible to know a firm's reason for shifting
order flow, the Exchange believes that one such reason is because of
fee changes at any of the registered exchanges or non-exchange venues
to which the firm routes order flow. Accordingly, competitive forces
compel the Exchange to use exchange transaction fees and credits
because market participants can readily trade on competing venues if
they deem pricing levels at those other venues to be more favorable.
Proposed Rule Change
The Exchange currently provides ETP Holders with various tiered
credits for executing orders that add liquidity to the Exchange and
charges them various fees for executing orders that remove liquidity
from the Exchange, as set forth in Section VII. of the Fee Schedule,
titled ``Tier Rates--Round Lots and Odd Lots. The fees and credits
enumerated in Section VII. apply all securities priced at $1 or more
that are executed on the Exchange. ETP Holders may qualify for tiers of
discounted fees and premium credits based, in part, upon the volume of
their activities on the Exchange as a percentage of total
``Consolidated Average Daily Volume'' or ``CADV.''
Pursuant to Section I. of the Fee Schedule, the term ``CADV''
means, unless otherwise stated, the United States consolidated average
daily volume of transactions reported to a securities information
processor (``SIP''). Transactions that are not reported to a SIP are
not included in the CADV. If CADV is preceded by a reference to a Tape
or to Sub-Dollar, then CADV would refer to all consolidated average
daily volume of transactions reported to a SIP for all securities in
that Tape or to all Sub-Dollar securities. Per the Fee Schedule, trade
activity on days when
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the market closes early and on the date of the annual reconstitution of
the Russell Investment Indexes does not count toward volume tiers.\11\
For purposes of determining trade related fees and credits based on
CADV, the Exchange may exclude any day that (1) the Exchange is not
open for the entire trading day and/or (2) a disruption affects an
Exchange system that lasts for more than 60 minutes during regular
trading hours.\12\
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\11\ See Fee Schedule, Footnote 1.
\12\ Id.
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Generally, the ratio of consolidated volumes in securities priced
at or above $1 (``dollar plus volume'') relative to consolidated
volumes inclusive of securities priced below a dollar is usually stable
from month to month, such that ``CADV'' has been a reasonable baseline
for determining tiered incentives for ETP Holders that execute dollar
plus volume on the Exchange. However, there have been a few months
where volumes in securities priced below a dollar (``sub-dollar
volume'') have been elevated, thereby impacting the ratio mentioned
above.
Anomalous rises in sub-dollar volume stand to have a material
adverse impact on ETP Holders' qualifications for pricing tiers/
incentives because such qualifications depend upon ETP Holders
achieving threshold percentages of volumes as a percentage of CADV, and
an extraordinary rise in sub-dollar volume stands to elevate CADV. As a
result, ETP Holders may find it more difficult, if not practically
impossible, to qualify for or to continue to qualify for their existing
incentives during months where there are such rises in sub-dollar
volumes, even if their dollar plus volumes have not diminished relative
to prior months.
The Exchange believes that it would be unfair for ETP Holders that
execute significant dollar plus volumes on the Exchange to fail to
achieve or to lose their existing incentives for such volumes due to
anomalous behavior that is extraneous to them. Therefore, the Exchange
wishes to amend the Fee Schedule to help avoid extraordinary spikes in
sub-dollar volumes from adversely affecting an ETP Holder's
qualification of incentives for their dollar plus stock executions.
Accordingly, the Exchange proposes to amend footnote 1 of the Fee
Schedule to state that, for purposes of calculating an ETP Holder's
qualifications for fees and credits that pertain to providing
liquidity, the Exchange will calculate an ETP Holder's equity volume
and total equity CADV twice for the following tiers: Adding Tiers,
Limit Non-Display Step Up Tier and Tape C Tiers for Adding. First, the
Exchange will calculate an ETP Holder's equity volume and total equity
CADV inclusive of volume that consists of executions in securities
priced less than $1. Second, the Exchange will calculate an ETP
Holder's equity volume and total equity CADV exclusive of volume that
consists of executions in securities priced less than $1. As proposed,
the Exchange will then assess which of these two calculations would
qualify the ETP Holder for the most advantageous fees and credits for
the month and then the Exchange will apply those to the ETP Holder.
Another market recently amended its rules to provide its members with a
similar remedy.\13\
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\13\ See Securities Exchange Act Release No. 99535 (February 14,
2024), 89 FR 13125 (SR-NASDAQ-2024-005) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 118).
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Although the Exchange wishes to avoid extraordinary spikes in sub-
dollar volumes from adversely affecting an ETP Holder's qualification
of incentives for their dollar plus stock executions, the Exchange
proposes to limit the application of the proposed calculation to
efficiently allocate the Exchange's limited resources for incentives.
Specifically, as noted above, the Exchange proposes to apply the
proposed calculation excluding sub-dollar volumes to the incentives
that pertain to providing liquidity under the Adding Tiers, the Limit
Non-Display Step Up Tier and the Tape C Tiers for Adding. The Exchange
wishes to impose such limitations in order to limit the cost impact on
the Exchange, while still providing some relief to ETP Holders in
months with extraordinary spikes in sub-dollar volumes. It is
appropriate for the Exchange to devote to incentive programs in a
meaningful way and to reallocate these incentives periodically in a
manner that best achieves the Exchange's overall mix of objectives.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any significant problems
that market participants would have in complying with the proposed
changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\14\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\15\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(4) and (5).
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As discussed above, the Exchange operates in a highly fragmented
and competitive market. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \16\ As a
threshold matter, the Exchange is subject to significant competitive
forces in the market for equity securities transaction services that
constrain its pricing determinations in that market.
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\16\ See Regulation NMS, supra note 6, 70 FR at 37499.
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including credits and fees that
apply based upon members achieving certain volume thresholds. The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, the Exchange's fees
are reasonably constrained by competitive alternatives and market
participants can readily trade on competing venues if they deem pricing
levels at those other venues to be more favorable.
The Exchange believes that the proposal to amend the Fee Schedule
is reasonable and equitable because, in its absence, ETP Holders may
experience material adverse impacts on their ability to qualify for
certain incentives during a month with an anomalous rise in sub-dollar
volumes. The Exchange does not wish to penalize ETP Holders that
execute significant volumes on the Exchange due to anomalous and
extraneous trading activities of a small number of firms in sub-dollar
securities. The proposed rule would seek to
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provide a means for ETP Holders that provide liquidity to avoid such a
penalty by determining whether calculating ETP Holder equity volume and
total equity CADV to include or exclude sub-dollar volume would result
in ETP Holders qualifying for the most advantageous fees and credits,
and then applying the calculations that would result in the incentives
for providing liquidity that are most advantageous to each ETP Holder.
The Exchange believes it is reasonable to limit the proposal by
applying the proposed calculation to incentives that pertain to
providing liquidity to a limited number of pricing tiers because the
pricing tiers that are the subject of this proposed rule change are
those that are the most impacted by anomalous spikes in sub-dollar
volumes, and by applying the additional calculation to those specified
pricing tiers would alleviate burden on ETP Holders from being
disadvantaged by trading over which it has little or no control. The
Exchange believes that the proposed rule change is an equitable
allocation and is not unfairly discriminatory because the Exchange does
not intend for the proposal to advantage any particular ETP Holders and
the Exchange will apply the proposed calculation to all similarly
situated ETP Holders.
On the backdrop of the competitive environment in which the
Exchange currently operates, the proposed rule change is a reasonable
attempt by the Exchange to maintain, if not improve its market share
relative to its competitors.
Finally, the submission of orders to the Exchange is optional for
ETP Holders in that they could choose whether to submit orders to the
Exchange and, if they do, the extent of its activity in this regard.
The Exchange believes that it is subject to significant competitive
forces, as described below in the Exchange's statement regarding the
burden on competition.
For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\17\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\17\ 15 U.S.C. 78f(b)(8).
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Intramarket Competition. The Exchange does not believe that its
proposal would place any category of Exchange participant at a
competitive disadvantage. The Exchange intends for its proposed changes
to the fees and credits to reallocate its limited resources more
efficiently and to align them with the Exchange's overall mix of
objectives. The proposed rule change is intended to help avoid pricing
disadvantages due to anomalous spikes in sub-dollar volumes and is not
intended to provide a competitive advantage to any one particular ETP
Holder. The proposed calculation would be available to all similarly-
situated market participants, and, as such, the proposed changes would
not impose a disparate burden on competition among market participants
on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchanges and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As noted
above, the Exchange's market share of intraday trading (i.e., excluding
auctions) is currently less than 12%. In such an environment, the
Exchange must continually review, and consider adjusting its fees and
credits to remain competitive with other exchanges and with off-
exchange venues. Because competitors are free to modify their own fees
and credits in response, the Exchange does not believe its proposed fee
change can impose any burden on intermarket competition.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer comparable transaction pricing, by
encouraging additional orders to be sent to the Exchange for execution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective upon filing pursuant
to Section 19(b)(3)(A) \18\ of the Act and paragraph (f) thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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\18\ 15 U.S.C. 78s(b)(3)(A).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="6311160f064e000c0e0e060d1710231006004d040c15">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2024-50 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2024-50. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-NYSEARCA-2024-50, and
should be submitted on or before July 12, 2024.
[[Page 52156]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13552 Filed 6-20-24; 8:45 am]
BILLING CODE 8011-01-P
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